The truth is that most college-bound students and their families will face a funding gap between what they can afford to pay out of pocket for school combined with grants and scholarships, and the final net cost of attendance. This funding gap can be bridged with student loans. However, it’s important that families choose the right student loan program for their unique situation.
Let’s dive into what student loan programs are out there, and what families need to know about borrowing.
Student Loan Timeline
Most colleges issue fall semester bills in July, and they’re typically due in August. Spring semester bills are issued in November and are due in December. If you know ahead of time that you will need student loans to cover your funding gap, you’ll need to have them in place by early to mid July for fall, and early to mid November for spring. If you plan to enroll in a monthly payment plan rather than paying your bills in full, you may need to have your plan in place earlier – closer to June 1st (when many payment plans begin).
Student loan providers usually take between 1-3 days to process an application and issue a disbursement.
Understanding Student Loans
There is no one-size-fits-all approach to student loan borrowing. Your family will need to evaluate your unique needs and financial situation to determine which program and loan provider is best for you.
Comparing the details of each loan type can help you to gain a better understanding of student loan borrowing and make empowered decisions about which loan(s) to secure:
Federal Direct Student Loans
This is where borrowing begins! Unless the cost of college is fully covered for all four years, we recommend each student take advantage of the Federal Direct Student Loan, even if borrowing is not needed until the later years of school.
In order to secure the full $27,000 of this program, the student must secure a FDSL each year that they’re enrolled. These funds are awarded as such:
- $5,500 Freshman Year
- $6,500 Sophomore Year
- $7,500 Junior Year
- $7,500 Senior Year
There are two categories of the FDSL:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
Direct subsidized and unsubsidized loans are both for college-bound students (not parents, and not graduates looking to consolidate). Subsidized loans generally:
- Are geared towards students who demonstrate financial need
- Have lower student loan borrowing limits
- Don’t accrue interest until the student graduates (the US Department of Education pays the interest while students are enrolled)
- Only available for undergraduate students
Unsubsidized loans generally:
- Are not subject to financial need stipulations
- Have higher borrowing limits
- Accrue interest while the student is in school
- Are available for undergraduate, graduate, and professional degrees
All of these loans are provided directly by the U.S. Department of Education.
Federal Parent Plus Loan
Direct PLUS loans are for the parents of college-bound students, and are provided by the U.S. Department of Education. The PLUS loan is a federal government program for parents that need to borrow money for their sons or daughters going off to college, or for graduate level schools, the students themselves borrow the PLUS loan. This is a pretty popular program that gets mixed reviews, but can be effectively used to help families successfully fund their college costs.
To be eligible for a PLUS Loan, you must:
- Be the parent of a dependent undergraduate student enrolled at least half-time at an eligible school
- Have a good credit history
- Meet the eligibility requirements for all federal student loans.
Through the PLUS loan program, parents can borrow up to the cost of attendance for their student minus any other financial assistance received.
Private loans are offered by third party lenders, and are less flexible than federal student loans.
Private loans generally:
- Are offered by banks or credit unions
- Have either fixed or variable interest rates
- Are credit based, not need based
- Offer the option to apply with a consignor
- Can be granted for a range of borrowing amounts, low or high
Students and their parents often look to private loans if they are already borrowing the maximum federal loan amount and have not received grants or scholarships, but still have a funding gap.
State loans aren’t offered country-wide, so your state of residence (or where your college-bound student is attending) may or may not offer them. State loans are only available for students attending a college in that state.
Compared to borrowing Parent PLUS loans from the U.S. Department of Education, state loans can often have lower fixed interest rates. Keep in mind that state loans, while more flexible in some ways, can be more strict when it comes to running credit checks, and offer more rigid repayment plans.